Nikola Stock Sinks after Announcing Yet Another Capital Raise

Nikola stock (NYSE: NKLA) fell over 6.5% yesterday after the company announced a $100 million capital raise, its second round of stock sale in less than a year.

Citi is the sole book-running manager for the issue and Nikola would price shares at $1.12 in the issue. Citi has the option to purchase another $15 million worth of shares. Nikola said that in case the stock sale is not successful, it would sell shares to an unnamed private investor in a private placement.

In its release, Nikola said, that it “currently intends to use the net proceeds from the public offering and the concurrent registered direct offering for working capital and other general corporate purposes.”

EV companies are burning a lot of cash

Amid perennial cash burn, startup EV (electric vehicle) companies have been in a virtual race to raise more capital. Over the last year, several EV companies including Rivian, Lucid Motors, Nikola, Lordstown Motors, and Arrival have raised cash.

Rivian incidentally had almost $12 billion on its balance sheet at the end of 2022 but still announced a $1.3 billion convertible bond issue. The company had previously said that the cash on its balance sheet would fund its operations until the end of 2025.

However, amid an almost unending cash burn, with Rivian only burning $6 billion last year, startup EV companies have been looking to add more cushion to their balance sheet.

Last year, Lucid also raised $1.5 billion in a stock sale where Saudi Arabia’s sovereign wealth fund which happens to be its biggest stockholder also participated. The company expects the current cash on its balance sheet to fund its operations at least until the first quarter of 2024.

Nikola announces stock sale

Nikola had $233.4 million of cash and cash equivalents at the end of 2022. The company’s production is running behind schedule, like almost all the startup EV companies and it produced just 258 trucks last year.

It expects to build only between 250-350 battery semi-trucks in 2023 and between 125-150 trucks powered by hydrogen fuel cells. While fuel cell vehicles invariably have a higher range than their battery-electric counterparts, Tesla CEO Elon Musk is not a fan of vehicles running on fuel cells.

Tesla sells only BEVs (battery electric vehicles) and is the largest seller globally. However, China’s BYD which also sells PHEVs (plug-in hybrid electric vehicles) was the biggest seller of NEVs (new energy vehicles) last year.

Apart from Nikola, Toyota, Honda, and Volvo are some of the other companies that are working on fuel cell vehicles. The higher range of fuel cell vehicles makes them a better alternative for long-haul trucks.

Nikola was among the first EV SPACs

Meanwhile, when Nikola went public in 2020, it was among the first EV SPACs (special purpose acquisition companies). At its peak in 2020, the company’s market cap was in excess of $30 billion and it surpassed Ford’s then valuation.

It was among the early signs of an impending bubble in EV stocks. However, thanks to the Fed’s accommodative monetary policies and scores of SPACs hunting for EV targets, the bubble continued to build and only got bigger by the end of 2021.

When Rivian listed in 2021, it became the biggest listing since Facebook’s 2012 listing. Rivian’s IPO sailed through easily and the company priced the shares at $78 each, which was above the already increased price range. The stock had a good listing and went on to hit an all-time high of $179.47, which was over twice the IPO price.

Rivian’s market cap surpassed $150 billion in 2021

At its peak, Rivian commanded a market cap of over $150 billion which was even higher than General Motors, America’s biggest automaker.

Even Tesla’s market cap hit $1.2 trillion in 2021 and it became the first automaker ever to have a market cap in excess of $1 trillion. The company’s current market cap is now just about half of the 2021 peaks.

It has still fared much better than other EV companies including Nikola that trade at a tiny fraction of their all-time highs.

Startup EV companies are struggling

Most startup EV companies are struggling to meet market expectations. Not only has their production been disappointing but their cash burn and losses have been too high for comfort.

Lucid Motors for instance expects to produce between 10,000-14,000 cars in 2023. The guidance is even lower than its original 2022 guidance. Also, it would imply a production run rate similar to the fourth quarter of 2022.

While releasing its Q4 2022 earnings, Lucid Motors said that it had a total reservation of over 28,000. During the Q3 2022 earnings call, the company said it has 34,000 reservations while the figure was 37,000 in the previous quarter. LCID’s reservations have now dropped for two consecutive quarters.

The company would also now stop providing the reservation number and said that the current reservations are a revenue opportunity of $2.7 billion. Here it is worth noting that the reservations do not include the upto 100,000 vehicles that Saudi Arabia could order from the company.

Lucid admitted that in order to increase sales it needs to increase brand awareness.

Nikola stock sinks toward all-time lows

Coming back to Nikola, the stock is now a tad short of its all-time lows. The fate of many de-SPACs, or the companies that went public through SPAC reverse mergers, is no different. Virgin Orbit yesterday laid off most of its employees after it failed to secure funding.

Between 2020 and 2021, loss-making companies were able to raise capital quite easily due to the availability of easy money.

Now, as Fed has raised rates to multi-year highs, startups face a funding winter. Even some of the listed names are facing trouble raising funds as not many investors are willing to back perennially loss-making companies with unproven business models.

As for Nikola, like other startup EV companies, the road ahead looks quite bumpy amid a deteriorating economy and rising competition in the EV industry.